For the benchmark FBM KLCI, MIDF Research’s revised baseline target for 2025 stood at 1,670 points.
PETALING JAYA: Malaysia’s equity market is expected to see a mixed performance in the year ahead, with key external factors shaping investor sentiment and market direction.
While there is potential for a positive outlook supported by corporate earnings growth and improved global liquidity conditions, ongoing geopolitical tensions and policy uncertainties pose significant risks.
According to MIDF Research, market consensus anticipated the FBM KLCI to record a healthy 6.7% year-on-year earnings growth in 2025, alongside resilient macroeconomic performance.
The research house also noted that “expectation of further rate cuts by major central banks together with additional stimulus should be overall positive to the world’s financial liquidity situation in 2025”.
However, MIDF Research cautioned that the externally driven downside risks to the 2025 outlook are burgeoning, with key concerns being “uncertainties engendered by US tariff policy, as well as recent underperformance of the US economy”.
The brokerage had reassessed its equity valuation targets due to “the prevailing downward pressure on local and regional equity markets engendered by incessant outflow of foreign funds arguably due to rising economic risks particularly surrounding the US tariff threats.”
For the benchmark FBM KLCI, MIDF Research’s revised baseline target for 2025 stood at 1,670 points based on 14.8 times earnings multiple, down from its previous forecast of 1,800 points with 15.9 times earnings multiple.
In the interim period, MIDF Research anticipated continued volatility in the markets for the second quarter of 2025 given the uncertainties stemming from US trade policies.
While the expectation of US rate cuts could lead to a weaker US dollar, which may entice foreigners to return to Malaysia’s markets, MIDF Research stressed that given the indecisiveness of US policies, it is “not a given”.
The year began with notable market turbulence, as MIDF Research pointed out that while it had expected that 2025 would be a volatile year for the markets, it did not anticipate that it could as early as January of this year.
It attributed this early volatility to the US President Joe Biden’s parting shot as he left office with the advance chips restrictions, which caused share price drawdowns in Malaysia’s construction and property companies due to overblown fears of a diminished data centre prospect.
The situation was compounded by President Donald Trump’s entry into office, which saw the US stock market significantly impacted by the ongoing geopolitical tensions, particularly between the United States and China.
MIDF Research noted that these tensions led to concerns over trade policies and their potential impact on global supply chains, adding that investors had been wary of the potential for new tariffs or trade restrictions.
Investor caution resulted in a risk-off mode for the United States and emerging markets, according to MIDF Research.
Nonetheless, it observed that stimulus in China and possible rotation to European markets saw these two regions outperforming in the first quarter of 2025.
It opined that emerging markets’ underperformance stemmed from concerns about the impact of tariffs on export-dependent economies such as Malaysia.
Domestically, MIDF Research noted that investors had been flocking to dividend-yielding sectors, with the real estate investment trusts (REITs) and finance sectors demonstrating resilience.
“We noted that certain sectors have shown some resiliency,” it said, adding that “REITs and finance segments have outperformed the FBM KLCI.”
The research house linked this interest to the sectors’ “attractive dividend yields of 4% to 6% which moderate the downside risks from the increased volatility.”
Despite foreign funds continuing to be net sellers in the first quarter of 2025, MIDF Research highlighted that some sectors saw net buying, namely REITs and construction.
This trend, it said, reflected foreign investors looking past the overblown fears regarding data centres and the sector.
MIDF Research remained cautiously optimistic about foreign fund flows, stating that it expects to see a reversal to foreign net buying once there is more clarity in US policies, especially relating to trade and tariffs.
